RMD 10-Year Rule Exceptions (2020)
Question
What are the Exceptions to the 10-Year Rule under the SECURE Act?
Answer
The SECURE Act was signed into law on December 20, 2019. The Act established a 10-Year Rule as the maximum payout period for inherited retirement accounts that have been inherited from Participants dying after 12/31/2019, with a few Exceptions.
The Exceptions apply to Eligible Designated Beneficiaries (EDBs).
Eligible Designated Beneficiary (EDBs)
Created under the SECURE Act of 2019, Eligible Designated Beneficiaries (EDBs) are defined as follows:
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Surviving spouse of Participant. On the surviving spouse's death, the Exception ceases, and the 10-Year Rule payout applies to the Successor Beneficiary. The RMD Calculator requires a deceased spouse to be listed in the Relatives panel on the survivor’s Client Profile screen to proceed with the calculation for a surviving spouse.
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A chronically ill or disabled heir may continue to recalculate RMDs under the 2001 Rules, i.e., "stretch IRA" rules. The advisor should validate the heir's condition based on anecdotal or written evidence from the parent or guardian.
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Heirs not more than 10 years younger than the Participant (original owner) may continue to recalculate RMDs under the 2001 Rules. Upon the heir's death, the 10-Year Rule payout applies to the Successor Beneficiaries. This Exception is beneficial to friends and siblings of a decedent. The RMD Calculator compares the Primary Beneficiary’s year of birth to the Successor Beneficiary’s year of birth. The difference (Successor Beneficiary's year of birth - Primary Beneficiary's year of birth) must be greater than 0 and less than 11. There is no IRS guidance yet on the definition of “not more than 10 years younger.”
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A minor child (but not a grandchild) up to the age of majority (depending on state law). When the child is no longer a minor, the 10-year payout period begins. The RMD Calculator requires a date of birth entry on the child’s Contact Profile, as well as a state of residence. The age of majority is 19 in Alabama and Nebraska; 21 in Mississippi, Puerto Rico, and Guam; and 18 in all other states. The RMD Calculator uses the child's age as of 12/31 of the prior year. There is no IRS guidance yet on the definition of "achieving the age of majority."
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A minor child who is less than age 26 and still in school can follow the 2001 Rules. Once the student is greater than 25 years old, the 10-year payout period begins. The RMD Calculator requires a date of birth entry on the student’s Contact Profile. The child's age as of 12/31 of the prior year is verified to be less than 26. The advisor should assess the validity of the student's academic program based on anecdotal or written evidence from the parent or guardian. There is no IRS guidance yet on the definition of attaining "the age of 26."
The 10-Year Rule Exception checkbox facilitates handling the Exceptions under the SECURE Act.
When an Exception no longer applies, uncheck the 10-Year Rule Exception checkbox in the Account Flags panel on the Account Details screen,
or on the Required Minimum Distribution Calculator screen, Step 5, Current Asset Holder panel.
The 10-Year Rule Exception checkbox is displayed in these two locations, but it is the same checkbox.
Annually, advisors need to review the applicability of the Exceptions to each account being distributed under the Exceptions provisions. A list of Client accounts that have the 10-Year Rule Exceptions may be viewed by clicking on Operations > Accounts > RMD > RMD Exceptions tab.
When the calculation Method is Recalc or N-1, the Yrs Left column, the Gradual column, and the Expiration column do not apply.
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RMD Resources
H881
10Year Rule
10 Year Rule
